Key Points:
- Dangote Sugar seeks $69.56 million via commercial paper issuance to navigate high borrowing costs in Nigeria.
- Dangote Sugar offers attractive rates (up to 21.17 percent) to compete with rising bank interests exceeding 40 percent.
- Despite challenges, Dangote Sugar aims to eliminate Nigeria’s reliance on sugar imports within four years.
Dangote Sugar Refinery Plc, the sugar company of Africa’s richest man Aliko Dangote, is seeking to raise N100 billion ($69.56 million) through a Commercial Paper (CP) issuance to navigate a difficult borrowing environment in Nigeria.
The company is offering two tranches under its N150 billion ($104.35 million) CP program. Series 4 offers a 181-day tenor at a discount rate of 20.65 percent, while Series 5 offers a 265-day tenor at 21.17 percent. The offer opened on May 16 and closes today, May 22, with settlement scheduled for May 23.
This issuance is expected to raise the total amount garnered from the program to approximately N199.01 billion ($138.43 million). Since its Feb. 9, 2024, admission to the FMDQ, Dangote Sugar has successfully issued Series 1, 2, and 3, raising N99.01 billion ($68.87 million).
This includes N39.39 billion ($27.40 million) in Series 1 at a 17.08-percent discount rate and a 266-day tenor, N6.15 billion ($4.28 million) in Series 2 at 19.81 percent for 184 days, and N53.47 billion ($37.19 million) in Series 3 at 21.30 percent for 254 days.
CPs offer alternative to costly bank loans
Nigeria’s recent benchmark interest rate hike to 24.75 percent has significantly increased borrowing costs for businesses. Dangote Sugar’s CP offerings, with discount rates reaching 21.3 percent, present an attractive alternative to traditional bank loans. These rates are comparable to the returns on recently issued government treasury bills, making them a compelling short-term investment option.
However, the high discount rates highlight the challenges faced by Nigeria’s real sector. Lenders like Stanbic IBTC charge manufacturing companies interest rates as high as 50 percent, while others like FCMB offer rates between 23 percent and 40 percent.
The combination of rising energy costs, foreign exchange exposure losses, and high inflation has severely impacted Nigerian manufacturers this year. Borrowing costs exceeding 40 percent further squeeze profit margins and hinder growth.
With banks offering limited options, companies like Dangote Sugar are turning to the fixed-income market for alternative financing. However, the need to compete for investors pushes discount rates toward 20 percent, posing another hurdle for businesses.
About Dangote Sugar Refinery
Dangote Sugar Refinery is a subsidiary of Dangote Group, a Nigerian diversified industrial conglomerate with holdings in cement, fertilizer, sugar refining, and petrochemicals. The leading sugar company boasts a refining capacity of 1.44 million metric tonnes, making it Nigeria’s largest household and commercial sugar producer.
Aliko Dangote, with a net worth of $14.8 billion, according to the Bloomberg Billionaire Index), owns a 72.7-percent stake in Dangote Sugar, with a market value estimated at $244 million.
The recent naira devaluation has impacted Dangote Sugar’s financial performance in recent times. The company reported a first-quarter loss of $49.6 million, a reversal from the $9.2-million profit recorded in the same period last year.
However, a 20-percent year-on-year revenue increase to $88.17 million demonstrates the company’s ability to adapt to a challenging market. Despite these difficulties, Dangote Sugar remains ambitious, aiming to eliminate Nigeria’s reliance on sugar imports within the next four years.
